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Proposed reforms to the rectification of building defects in new strata schemes

Defective building work in multi-level apartments remains a major headache for apartment owners, particularly in this booming market. Owners and their body corporates are often denied redress, despite warranties implied by the Home Building Act, due to the project’s exemption from the requirement for Insurance Under the Home Building Compensation Fund and the builder being insolvent or even just uncooperative. Proposed reforms to the NSW strata laws aim to address this through developer bonds and compulsory, post completion inspections[1].

Inspection Reports

The proposed reforms envisage an obligation on developers of strata schemes to have the building work inspected by a building inspector approved by both the owners corporation and the developer. If the developer and owners corporation cannot agree on the selection of an inspector the Chief Executive of the Office of Finance and Services is to arrange for the appointment.

The inspector is to be appointed no later than twelve months after the completion of work and an interim report is to be provided within 18 months of completion of the works. A final inspection is required to be carried out and report provided not earlier than 18 months and not later than 2 years after the completion.

The cost of the inspections and reports are to be met by the developer.

Building Bonds

The proposal requires developers to provide a building bond of 2% of the contract price to be paid into a special building bond accounts. The deposit of the building bond will be required before the occupation certificate may issue.

If the final report identifies defective work and estimates the cost of rectifying the defective work then the whole or part of the building bond will be available to the owners corporation to meet or be applied towards the costs of rectifying the defects.

The building bond is only to be paid out or refunded to the developer two years after completion of the building work or within 60 days of the final inspection report being given to the developer, whichever occurs later.

The proposed reforms are still in the form of a draft bill to be introduced into NSW Parliament in October. The NSW Government anticipates them coming into effect in the new year.

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